The strength of consumer spending, reflected in house prices, retail sales and car sales would argue in favour of a rate rise earlier rather than later, as would the growth in the UK economy. [The UK economy is expected to grow by around 3% this year.]
On the other hand, for the moment, inflation, reflected in retail prices (CPI) and manufacturing prices remain subdued and despite the strength of the jobs market, earnings remain below trend levels.
Dr John Ashcroft commented: “The decision on when to increase rates is finely balanced for MPC members at this time. Our Overheating Index is broadly neutral but tipped slightly in favour of a rate rise now. By the final quarter of the year, assuming earnings and inflation rally from current levels, the decision will be much more clear cut. Based on data from the Overheating Index, we expect rates to rise before the end of the year.”